It's Ugly Folks - The final congressional language on Finance Reform

Dealers who don't service cars (i.e., most independents) get no exemption, regardless of what they do with their retail installment contracts.  Dealers who hold their contracts or assign them to
an affiliated finance company (i.e., an RFC) get no exemption, even if
they.service cars.

(provided by Tom Hudson, Hudson Cook)

Dealers need to keep working to get this stopped. Our "educated" politicians just don't get it.

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Obviously the lobbying effort has mainly worked to benefit new car dealers and discriminate against independents considering that virtually every new car dealer has a shop and most independents don't. Goes to show that our elected officials don't represent the electorate, only those with deep pockets.
Do you have a link where we can read the latest ? - Fred
I would like a link to this as well. I do not understand this part of the bill and have not heard any mention of this. I have followed it through out.
Here is what was supplied by Mr. Hudson

(a) SALE, SERVICING, AND LEASING OF MOTOR VEHICLES EXCLUDED.—Except as permitted in subsection (b), the Bureau may not exercise any rulemaking, supervisory, enforcement or any other authority, including any authority to order assessments, over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.
(b) CERTAIN FUNCTIONS EXCEPTED.—Subsection (a) shall not apply to any person, to the extent that such person—
(1) provides consumers with any services related to residential or commercial mortgages or self financing transactions involving real property;
(2) operates a line of business—
(A) that involves the extension of retail credit or retail leases involving motor vehicles; and
(B) in which—
(i) the extension of retail credit or retail leases are provided directly to consumers; and
(ii) the contract governing such extension of retail credit or retail leases is not routinely assigned to an unaffiliated third party finance or leasing source; or
(3) offers or provides a consumer financial product or service not involving or related to the sale, financing, leasing, rental, repair, refurbishment, maintenance, or other servicing of motor vehicles, motor vehicle parts, or any related or ancillary product or service.
(c) PRESERVATION OF AUTHORITIES OF OTHER AGENCIES.—Except as provided in subsections (b) and (d), nothing in this title, including subtitle F, shall be construed as modifying, limiting, or superseding the operation of any provision of Federal law, or otherwise affecting the authority of the Board of Governors, the Federal Trade Commission, or any other Federal agency, with respect to a person described in subsection (a).
(d) FEDERAL TRADE COMMISSION AUTHORITY. — Notwithstanding section 18 of the Federal Trade Commission Act, the Federal Trade Commission is authorized to prescribe rules under sections 5 and 18(a)(1)(B) of the Federal Trade Commission Act, in accordance with section 553 of title 5, United States Code, with respect to a person described in subsection (a).
(e) COORDINATION WITH OFFICE OF SERVICE MEMBER AFFAIRS.—The Board of Governors and the Federal Trade Commission shall coordinate with the Office of Service Member Affairs, to ensure that—
(1) service members and their families are educated and empowered to make better informed decisions regarding consumer financial products and services offered by motor vehicle dealers, with a focus on motor vehicle dealers in the proximity of military installations; and
(2) complaints by service members and their families concerning such motor vehicle dealers are effectively monitored and responded to, and where appropriate, enforcement action is pursued by the authorized agencies.
(f) DEFINITIONS.—For purposes of this section, the following definitions shall apply:
(1) MOTOR VEHICLE.—The term ‘‘motor vehicle’’ means—
(A) any self-propelled vehicle designed for transporting persons or property on a street, highway, or other road;
(B) recreational boats and marine equipment;
(C) motorcycles;
(D) motor homes, recreational vehicle trailers, and slide-in campers, as those terms are defined in sections 571.3 and 575.103 (d) of title 49, Code of Federal Regulations, or any successor thereto; and
(E) other vehicles that are titled and sold through dealers.
(2) MOTOR VEHICLE DEALER.—The term ‘‘motor vehicle dealer’’ means any person or resident in the United States, or any territory of the United States, who—
(A) is licensed by a State, a territory of the United States, or the District of Columbia to engage in the sale of motor vehicles; and
(B) takes title to, holds an ownership in, or takes physical custody of motor vehicles.
When Tom Hudson email this to me, I immediately asked him some reasonable questions regarding what is the definition for "servicing" vehicles?

When it comes to independents, a small percentage have bonafide service departments that indeed are performing customer pay work. Another percentage have a service department, or bays, that are dedicated to maintenance and repair of internals - vehicles being made ready for sale. Yet another percentage have a mechanic on duty and a bay or area to do the same thing. Finally, many have reconditioning bays which they use to make the vehicles cosmetically ready for sale.

His response was that the definition had yet to be set down (sounds like Cash for Clunkers all over) and that the beloved CFPA would be doing so. My read is that it therefore could be pretty restrictive.

In any case, some independents will be excluded, but if they or any new car dealer is doing any BHPH it won't make any difference and they won't be so lucky.
Can Mr Hudson tell us some things that we can look forward to, so that we may be prepared for the future. Such as how this will affect bh/ph
I'll try to answer a couple of the questions that have been asked. Greg's correct in quoting my reply that we really don't know many details yet when it comes to how the Consumer Financial Protection Bureau will regulate BHPH dealers and others that are subject to its jurisdiction. We won't know what its agenda will be in any detail until we begin to see proposed regulations from them.

Based on some of the congressional testimony and on the positions of the various consumer advocates, I think that the CFPB will try to: prohibit the use by dealers of mandatory arbitration agreements (many dealers employ arbitration agreements as a defense against class actions); prohibit what they see as abusive sales tactics, like payment packing; reduce or eliminate dealer participation in the finance charge that the buyer pays; prohibit or severely regulate spot deliveries; and impose restrictions on dealership advertising practices (especially Internet ads). These are a few examples - there will be other initiatives.

The CFPB will be a very large, very well-funded (I heard a number this morning of $400 to $600 million annually) federal cop. Reminds me of Shakespeare's Macbeth - "Something wicked this way comes." The CFPB will not be the dealer's friend.

BUT (and it's a big BUT), this isn't law yet. Senator Byrd's death throws a monkey wrench into the Democrats' vote counting. There's a possibilty that the Dems won't be able to hold their 60 vote majority. If I were a betting man, I'd bet the thing will pass, but that's just me.
Mr. Hudson, If it is not law yet is there anything else we can we do as dealers to help stop these regulations ?
An educated guess is "probably not." Yesterday, according to today's NY Times, Republicans balked at a bank tax added by the House and Senate conferees, sending the negotiators back to the table, where they quickly reached agreement to ditch the proposed tax.

The Dems claim that they have the 60 votes necessary to overcome a Republican filibuster in the Senate, but there's some doubt about that with the death of Senator Byrd a couple of days ago. So I believe the bill has momentum and will pass, but I've been wrong before.

Although it would have been much more effective for effective lobbying on behalf of independent dealers to have been done before the eleventh hour, it is never too late to contact your Senator and Representative and tell them that the CFPB is a bad idea they should vote against. But hurry, Barney Frank was quoted as saying the House might vote on the final bill today. The Senate, according to the NY Times, is unlikely to get to the measure until after the holiday.

If the bill passes both houses, President Obama will certainly sign it, and we'll have a new law. At that point, we will have lost the war, and it will be time to negotiate the peace.

By that, I mean that the new Bureau will begin to issue proposed regulations addressing what it sees as abusive and unfair practices by dealers. When that process begins, it will be critical for independent dealers to have a knowledgable and effective voice in Washington commenting on the proposed regulations and attempting to educate the Bureau's lawyers about the auto business.

Make no mistake, if this bill becomes law, it will be the largest regulatory event to hit car dealers since the Truth in Lending Act of the late 60's. We're not going to like it.
We are a new car franchise and have a Related Finance Company that we assign Retail Installment contracts to. How do you see this regulation impacting a RFC? Would you anticipate it impacting a non-related Finance Company that we assign subprime contracts to the same way? Do you anticipate either falling under the same regulations as a traditional BHPH operation?

I would agree with you that if not this week the bill will unfortunately be passed shortly. I know the "fine details" are yet to be determined and there are a lot of unknowns but do you anticipate having a RFC or seperate Finance Company offering any relief?
Chris -

All finance companies (related or not) will fall squarely within the CFPB's authority. That means that your RFC, GMAC, Americredit and all the other finance companies will be regulated by the new entiry. And if your new car dealership assigns its paper to the RFC, the new car dealership loses its exemption from the CFPB.
I have an independent BHPH operation with a RFC and a complete service operation. Do I get rid of the RFC? Or are we SOL either way?


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